NexPoint Real Estate Finance Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: Net income per diluted share rose to $0.54 in Q2 from $0.40 a year earlier, driven by a $4.6 million uptick in interest income and $0.7 million lower interest expense.
  • Negative Sentiment: Earnings available for distribution fell to $0.43 per share (from $0.68) and cash available for distribution to $0.46 (from $0.64), with a dividend coverage ratio of 0.92x.
  • Positive Sentiment: The portfolio totals $1.1 billion across 86 investments—49.5% multifamily and 32.7% life science—with strong credit metrics (58.5% LTV, 1.44x DSCR) and a low debt/equity ratio of 1.14x.
  • Positive Sentiment: Q3 guidance targets cash available for distribution of $0.50 per share at midpoint, up from $0.46 in Q2, backed by an active $235 million origination pipeline.
  • Positive Sentiment: Closed a 15-year lease on a 245,000 sq ft life science project yielding over 8% debt yield and completed an accretive asset sale to boost liquidity for new investments.
AI Generated. May Contain Errors.
Earnings Conference Call
NexPoint Real Estate Finance Q2 2025
00:00 / 00:00

There are 5 speakers on the call.

Operator

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the NextPoint Real Estate Finance Q2 twenty twenty five Earnings Call. Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the call over to Kristen Griffith, Investor Relations. Please go ahead.

Speaker 1

Thank you. Good day, everyone, and welcome to NextPoint Real Estate Finance conference call to review the company's results for the second quarter ended 06/30/2025. On the call today are Paul Riggs, Executive Vice President and Chief Financial Officer and Matt McGranger, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at enrev.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs.

Speaker 1

Listeners should not place undue reliance on any forward looking statement and are encouraged to review the company's annual report on Form 10 ks and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect the forward looking statements. Statements made during this conference call speak only as of today's date, and except as required by law, EnRef does not undertake any obligation to publicly update or revise any forward looking statements. This conference call also includes an analysis of non GAAP financial measures. For a more complete discussion of these non GAAP financial measures, see the company's presentation that was filed earlier today. I would now like to turn the call over to Paul Richards.

Speaker 1

Please go ahead, Paul.

Speaker 2

Thank you, Kristen, and welcome, everyone, us this morning. I'm going to briefly discuss our quarterly results, move to our balance sheet, and lastly provide guidance for the next quarter before turning it over to Matt for detailed commentary on the portfolio and the macro lending environment. Q2 results are as follows. For second quarter, we reported a net income of $0.54 per diluted share compared to net income of $0.40 per diluted share for the second quarter twenty twenty four. The increase in net income for the quarter was due to an increase in interest income between the second quarter twenty twenty five to the second quarter twenty twenty four.

Speaker 2

Interest income increased by $4,600,000 to $22,800,000 in the 2025 from $18,200,000 in the 2024. The increase was driven by an uptick in interest income driven by increased income from investments. Interest expense decreased $700,000 in the second quarter twenty twenty five compared to the same period in the prior year from the deleveraging that occurred in the 2024. Earnings available for distribution was $0.43 per diluted common share in Q2 compared to $0.68 per diluted common share in the same period of 2024. Cash available for distribution was $0.46 per diluted common share in Q2 compared to $0.64 per diluted common share in the same period of 2024.

Speaker 2

The increase in earnings available for distribution was driven by the increase in net income for the quarter. We paid a regular dividend of $0.50 per share in the second quarter, and the Board has declared a dividend of $0.50 per share payable for the 2025. Our dividend in the second quarter was 0.92 times covered by cash available for distribution. Book value per share increased 1% from Q1 twenty twenty five to $17.4 per diluted common share, with the increase being primarily due to unrealized gain on the preferred stock investments. During the quarter, we funded $39,500,000 on Life Science Preferred, and we purchased $15,300,000 CMBS IO strip with a bond equivalent yield of 7.24%.

Speaker 2

Moving to our balance sheet and portfolio. Our portfolio is comprised of 86 investments with a total outstanding balance of $1,100,000,000 Our investments are allocated across the sector as follows: 49.5% multifamily, 32.7% life science, 15.5% single time to rental, 1.6 storage, 0.7% marina and 0.1% specialty manufacturing. Our fixed income portfolio is allocated across investments and falls: 28.3% CMBS BPs, 24.9% mezz loans, 18.7% preferred equity investments, 12.9% revolving credit facilities, 10.4% senior loans, 4.5% IO strips and 0.1% promissory notes. The assets collateralizing our investments are allocated geographically as follows: 27% Massachusetts, 15% Texas, 6% California, 6% Georgia, 4% Maryland, 4% Florida, with the remainder across states with less than 4% exposure, reflecting our heavy presence and preference for Sunbelt markets with the Massachusetts and California exposure heavily weighted towards life science. The collateral on our portfolio is 74% stabilized with a 58.5% loan to value and a weighted average DSCR of 1.44 times.

Speaker 2

We have $815,600,000 of debt outstanding with a weighted average cost of 5.9%. Our debt is collateralized by $865,400,000 of collateral with a weighted average maturity of three point eight years. Our debt to equity ratio is 1.14 times. Moving to our guidance for the third quarter. We are guiding to earnings available for distribution and cash available for distribution as follows.

Speaker 2

Earnings available for distribution of $0.42 per diluted common share at the midpoint with a range of $0.37 on the low end and $0.47 on the high end. Cash available for distribution of $0.50 per diluted common share at the midpoint with a range of $0.45 on the low end and $0.55 on the high end. Now I would like to turn over to Matt for a detailed discussion of the portfolio and markets. Matt?

Speaker 3

Thank you, Paul. As he just mentioned, we're pleased to report another strong quarter amidst a challenging macro backdrop. I'd like to spend a few minutes here discussing our verticals and what we're seeing before I turn over to talk about our pipeline. On the residential front, supply pressures have eased somewhat, but continue to present concentrated challenges in some in Sunbelt markets in particular. According to RealPage, 2025 marked the first quarterly drop of over 20 basis points in inventory growth in over fifteen years as new deliveries tapered after peaking in late twenty twenty four.

Speaker 3

Despite the slowdown, over 400,000 units were delivered in the trailing twelve months, sustaining elevated competition and lease ups. The upshot here is that after one more quarter of significant deliveries in March 2025, the national delivery outlook contracts to a GFC level output of just 77,000 units per quarter, which supports our thesis on accelerating fundamentals the multifamily sector in 2026, 2027, 2028. More positive news, demand outperformed expectations in the first half of the year. Net absorption surged in the national stabilized occupancy rate improved to 94.6 in July. New lease rates are still modestly negative in most of our markets as operators continue to be defensive.

Speaker 3

However, we are very constructive on rental rates continuing to inflect higher as the supply picture continues to improve. On the storage front, the REITs guided for flat to very low single digit revenue growth and flat to negative 1.5% NOI growth in 2025. Q1 earnings were slightly better than expected, but guidance was maintained. Post May REIT commentary in June indicated rising occupancies and improving rates. Still, the sluggish housing market continues to weigh on the self storage demand.

Speaker 3

Home sales are at a multiyear low and mortgage rates remain elevated, softening the 2025 peak leasing season. Still, the REITs are pushing street and web rates, which could support q two results and have so far. REITs with exposure to major markets are outperforming on the occupancy front, I. E, Extra Space and Public Storage, SmartStop. These exceed their 2025 projected averages while operators in secondary and tertiary markets continue to underperform.

Speaker 3

On the supply outlook, new development remains below equilibrium under two and a half percent of existing supply And with limited bank financing, high land and construction costs, and elevated interest rates, supply continues to be in check. This supply discipline should help restore pricing power as housing activity rebounds. Finally, on the life science front, lab leasing continues to be challenging, particularly given the tariff and NIH funding uncertainty under the new administration. With that said, we're pleased to report some great great momentum at our AIOY project. We're closing in on a 245,000 square foot lease with an AI bi biologics company on a fifteen year deal producing a debt yield of just over 8% for for this just a portion of this project.

Speaker 3

We expect the formal announcement to occur in the first half of of, q three. We're very excited about this this upcoming, event. As Paul also mentioned, we were able to accretively dispose of Mofford last week, creating even more liquidity to fuel our pipeline. Today, active pipe pipeline of originations stands at over 235,000,000 and largely in the resi sector. We expect this incremental pipeline activity to create an increase in our CAD run rate in the high single digits.

Speaker 3

In closing, our underlying credit profile of the portfolio remains very strong atop the commercial mortgage REIT sector. Moreover, we continue to have some of the lowest leverage profile of any commercial mortgage REIT, which allows us a variety of capital options to pursue accretive growth. Indeed, we're excited about our growth in particular and cautiously optimistic about the overall market dynamics going into the second half of the year. As always, I wanna thank the team for their hard work, and now I'd like to turn the call over to the operator for question.

Operator

Your first question comes from the line of Jaysh Rumani with KBW. Your line is open.

Speaker 4

Thank you very much. Can you comment on credit trends within the Freddie Mac DPs portfolio? Both GSEs talked about a slight uptick in delinquency trends within their portfolio.

Speaker 2

Hey, Jay. This is Paul. Yes. Our VPs portfolio is still overall, you know, very solid, when compared to, you know, other CRE CLO, and that's 2122 vintage. You know, our VPs is again straddle 2018 through a 2025 vintage.

Speaker 2

So, you know, we we have some really good collateral, some really good deals that are both diversified fixed and floating. And I would say, yeah, there there's, you know, a few problem loans here and there. But overall, especially on the fixed side, it's been been really sturdy and, you know, really good credit profile. But, you know, again, I would say, you know, in our floating rate vintages in that 21 pool yeah. There there are a few loans that we have our eye on, but, you know, nothing of a complete concern as of right now.

Speaker 2

Matt, I don't if you have anything to add to that.

Speaker 3

Yeah. I think the, you know, given the amount of liquidity in the market, for for Resi in particular, you know, we're we're optimistic that, you know, some of the some of the troubled assets just broadly across all k deals and even in our portfolio are gonna be able to catch a bid here in the second half of the year, and and the borrowers will be able to, you know, have liquidity options to, you know, available to them whether it's, you know, more agency or or the debt the debt funds are getting more aggressive in particular on the on the multifamily sector. So, yeah, with the liquidity profile, I think everyone's, you know, waiting out the kind of the 2025, looking forward to 2026, and expect the the overall delinquency picture to improve going into the back half of the year even though, you know, we're still in a challenging supply environment.

Speaker 4

Thanks. On the Life Science side, can you talk about, pro form a for that, lease that you mentioned, what the occupancy would be at that point?

Speaker 2

So it's it's about yeah. Two third

Speaker 3

Yeah. Of course. So it's two thirds of the first phase of the project, which is which is what our loan is. So it'll be, you know, like I said, two thirds leased post, post deal announcement.

Speaker 4

So once that happens, how much duration will there be remaining on this loan?

Speaker 2

Roughly, on a fully extended basis, roughly two and a half years.

Speaker 3

But importantly, importantly, we're already, seeing and and and in talks with, you know, back leverage and a note lenders. And, you know, with the lease, we have a lot more, you know, financing options to us to, you know, to, probably be taken out, before that.

Speaker 4

So this project seems quite different from or resistant to the pressures we're seeing in life science overall. Several of the mortgage REITs, for example, have downgraded to risk five life science loans and books reserves this quarter.

Speaker 3

Yeah. Well, the good the good news for us is that we started you know, we made this loan in the in the midst of 2024, early twenty twenty four, and not in 2020 or 2021 or 2022. So that coupled with, the fact that that that the sponsor has 400,000,000 of equity versus our $218,218,000,000 dollar mortgage, and then plus we were able to land the lease. So, in a different spot than, than our peers, fortunately.

Speaker 4

Thanks. Wanted to ask your thoughts on the seniors housing space. You know, the thought is that COVID really outweighed the favorable demographic trend underpinning that sector because there were, you know, huge inflation in operating costs and a lot of delinquent tenants that remained in occupancy. You know, the inflation rate has moderated and the delinquencies are being reversed. So the fundamental outlook for that sector is much improved.

Speaker 4

Do you agree with that? And are you interested in adding exposure to that? What are your thoughts generally?

Speaker 3

Yeah. I I a 100% agree with that. And, you know, look no further than the the outperformance of Welltower, you know, over the last couple years. And then, yeah, the the proliferation even I think that they're doing in in build to rent and specialized, you know, projects for for an aging population. We're seeing, you know, a lot of capital in that space we put to work, you know, on the on the on the build to to rent side and and, you know, highly amenitized senior housing projects are finding good capital and good and great cap rates.

Speaker 3

So I I do think that that is a good place to play. We looked at a couple of purpose built, you know, senior built rent deals. Haven't hit on any any thus far, but it is an attractive space. I agree with you. And and one with some legs and, you know, over the next, over the course of this decade, I think.

Speaker 3

So, yeah, we're we're interested in.

Speaker 4

Thanks. I'll stay tuned for that. You all have been pretty nimble at identifying those kinds of opportunities, so I imagine it's something you'll look at.

Speaker 3

Yep. I agree. Thank you, Jay.

Speaker 4

Thanks.

Operator

I will now turn the call back to the management for closing remarks.

Speaker 3

Thank you very much, for everyone's time today, and we look forward to speaking to you, after the third quarter. Goodbye.

Operator

Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you.

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